Hutchison Offers Sky, Virgin Media ‘Significant’ Three-O2 Network Capacity In EU Clearance Bid

CK Hutchison is proposing to give Sky and Virgin Media significant capacity of a combined Three-O2 network if European regulators give their approval for the £10.25 billion merger, according to reports.

The European Commission (EC) is concerned that the reduction in UK mobile operators from four to three would have a serious impact on competition at a retail and network level and there are suggestions the EC is becoming less tolerant of market consolidation amid concerns of rising prices in markets where the number of operators has decreased.

Similar mergers have been given European approval in recent times, most notably in Ireland and Austria, but another deal between TeliaSonera and Telenor in Denmark was rejected after remedies could not be agreed upon. Earlier this week, a proposed merger between Orange and Boyuges Telecom was also abandoned.

Three-O2 merger

Negotiations between Three’s parent company and the European Commission (EC) are ongoing and a set of final proposed remedies is expected to be submitted today, according to the Financial Times.

CK Hutchison has already promised to freeze prices for five years and invest £5 billion in the combined network, adding it would pass on every cost efficiency from the merger to customers.

But now it hopes that be gaining the support of other major companies, it can ease competition fears. Its proposals would see Sky gaining a fifth of the combined capacity and Virgin Media ten percent, as part of ten year deals that would strengthen their respective mobile virtual network operator (MVNO).

As part of a separate deal to merge O2 and Three in Ireland, Hutchison pledged to free up capacity for two new MVNOs – Virgin Media (formerly UPC Ireland) and Carphone Warehouse’s iD.

Virgin Media has the UK’s largest MVNO and currently uses EE’s infrastructure to deliver mobile services. It supports the O2-Three merger as it would result in a stronger network partner, while Virgin’s parent company Liberty Global has benefited from EU-imposed remedies in other markets.

Satisfying demands

“A combined O2-Three could have more to offer consumers and, crucially, more capacity for other providers who want to drive competition in their own right,” its CEO Tom Mockridge said in February. “With the right remedies, this deal could stimulate not curb competition.”

Sky already plans to launch its own MVNO on the O2 network this year, and TechWeekEurope understands it believes Hutchison’s proposals could supercharge its mobile plans, which are not dependent on the outcome of EU’s negotiations.

The company had been considered a potential buyer for O2 at one point, but Sky has no interest in acquiring or building mobile infrastructure and does not share Ofcom’s concerns about a potential reduction in competition at network level. It would rather have three strong mobile networks in the UK to choose from, rather than two large and two smaller players that can’t deliver.

The presence of three major networks and three major MVNOs might be enough to satisfy demands for retail competition, but it is possible concerns at a network level might persist.

Hutchison has also reportedly promised to support infrastructure joint ventures between O2 and Vodafone (Beacon) and between Three and EE (MBNL) and could sell its half of the Tesco Mobile MVNO.

The EC has extended the deadline for any deal to be completed until 19 May in order for the proposals to be considered.

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